30.06.202018:59 Forex Analysis & Reviews: GBP / USD: sell pound on spurts of optimism

The pound paired with the dollar tested the 22nd figure for the first time in four weeks. The last time the pound was at such price bottom was at the end of last month. The downward price dynamics were primarily due to harsh statements by Boris Johnson regarding the prospects of the negotiation process between London and Brussels. The data on the growth of the British economy published today only increased the pressure on the pound, after which the GBP / USD pair again fell to the middle of the 22nd price level. But only for a few hours as the pair's bears could not develop the southern impulse because first, the pound received unexpected support from Johnson, and second, the dollar again demonstrated its vulnerability.

In the afternoon, the dollar index reached its ceiling which is located at around 97.6 points, turned 180 degrees, and headed back to its previous positions - in the middle of the flat corridor, in which it has been oscillating for almost a month. This turn of events somehow affected the dynamics of all dollar pairs, and the GBP / USD pair was no exception.

It is worth noting here that the recent growth of the dollar, like its current decline, is unsteady. Yesterday, the greenback reacted positively to the release of secondary macroeconomic data in the US housing market, while today it actually ignored the growth in the indicator of American consumer sentiment. Meanwhile, major stock indices opened today with growth, after which the dollar came under slight pressure. Also, one should not forget about the coronavirus, the pace of the spread of which scares many experts. Over the past day, the number of new cases of Covid-19 in the United States has exceeded 40 thousand. This sad figure exceeds the 40,000th mark for the fourth time in the last five days, while the total number of infected people in the United States is already approaching 2.7 million.

Most likely, the dollar index will continue to fluctuate within the above range, responding to the current news flow and waiting for Nonpharm, which will be published on Thursday.

The fundamental picture for the pound, in turn, is also ambiguous. On the one hand, disappointing macroeconomic data were published in Britain today. It became known that according to the final assessment, the country GDP in the first quarter grew by only 2.2% - this is the weakest growth rate since 1979. The slowdown has been recorded in all key sectors of the British economy. Most of the affected were industrial production by 1.5%, construction by 1.7%, and the services sector by 2.3%. In addition, household spending fell by almost 3%.

On the other hand, the pound received support from Boris Johnson today (who literally drowned him with his statement yesterday regarding Brexit's prospects). Today, the head of the British government promised to allocate 5 billion pounds to support the country economy. According to him, these funds will be used to modernize the infrastructure, repair hospitals, roads, and the needs of schools. He also promised to build new hospitals, schools, and colleges, noting that this would help create jobs.

The pound also reacted positively to comments by Bank of England spokesman John Cunliffe, who was skeptical of the idea of introducing a negative rate. Let me remind you that during the last meeting of the English regulator, Andrew Bailey unexpectedly returned to this topic, putting significant pressure on the British currency. But the rest of the Committee members are cautious enough about this issue, and so does Cunliffe.

As you can see, the pound is trading in conditions of conflicting "news noise" where the bears and bulls of the GBP / USD pair struggle to either push the pair to the middle of the 22nd figure or returns it to the 23rd price level. But if you look at a wider time range (for example, over the past four weeks), you can come to the conclusion that the pound is gradually moving with sharp upward pullbacks, but still slides down. And in my opinion, this trend will continue until London and Brussels find a common denominator in the protracted negotiations. Therefore, in the medium term, the trading strategy for the pound should remain unchanged: sale for any more or less significant growth.

Notice how just one phrase dropped by Johnson in a conversation with his Polish counterpart Mateusz Morawiecki brought down the pound throughout the market. Let me remind you that the British Prime Minister announced the possibility of interacting with the EU on conditions similar to those of Australia. Canberra did not conclude a single trade agreement with Brussels, so the exchange of goods takes place according to the rules of the WTO. At the same time, for some types of goods, both Australians and Europeans concluded separate transactions. Johnson wants to copy this kind of relationship algorithm. Downing Street confirmed that they are considering a similar scenario but only if the ongoing negotiations in Brussels fail.

This fundamental factor had a short-term impact on the pound, since the main stage of face-to-face negotiations is yet to come (namely in July). But here it is necessary to pay attention to how sharply the pound reacts to negative comments, rumors, and news regarding Brexit's prospects. This sensitivity makes the pound very vulnerable - for example, at the beginning of this week, the GBP/USD pair fell even against the backdrop of a general weakening of the dollar.

Thus, it is still advisable to use the growth of the pair as an occasion to open short positions. The closest resistance level is at 1.2410 (Tenkan-sen line on the daily chart). The next, most strong resistance level is the price of 1.2520 (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the same timeframe). From the above levels, sales can be considered, counting on a medium-term time period.